Present value of an annuity: Craymore Tech is expecting cash flows of $67,000 at the end of each year for the next five years. If the firm's discount rate is 17 per cent, what is the present value of this annuity? (Round to the nearest dollar.)

Question

Quizplus · Accepted Answer

The present value of an annuity is the sum of the present values of each individual cash flow. The present value of each cash flow is calculated by dividing the cash flow by (1 + r)^n, where r is the discount rate and n is the number of years until the cash flow is received. In this case, the present value of each cash flow is $67,000 / (1 + 0.17)^n. The present value of the annuity is the sum of the present values of each individual cash flow, which is $214,356.

Present Value of an Annuity: Craymore Tech Is Expecting Cash